Notes on Indian equities, sectors and economy

Did real GDP grow only 2-3% in FY13?

Posted by fairval on March 3, 2013

There is a certain calculation we can do from the data the government gives out on its budget day as shown in the table below (an extract from the larger budget table posted in the earlier post).

See row 21 and 22 – that is data reported by the government in its budget. If we divide 21/22 – the number we get should be the nominal GDP (row 25). Row 26 gives the growth rate in this derived nominal GDP. Note that in FY13, nominal GDP growth has dipped sharply to 10.7%. This is dramatically lower than earlier years.

Next we know reported real GDP growth rate from the data Mospi – or Ministry of Statistics and Plan Implementation –  reveals from time to time (row 27). If we substract row 27 from row 26 (not straight arithmatic deduction but compound subtraction), we get a rough estimate of the GDP deflator. For FY13, the deflator comes to 5%, again vastly lower than earlier years. Now i am no economist, and I am told that GDP deflator is not the same was WPI inflation (WPI largely ignore services sector, for ex), but still, a deflator of 5% makes no sense – in an year where inflation has been raging. Also note, in the previous 4 years, the deflator has been more than WPI in 3 of the 4 years (caveat: this is a derived deflator, not what is reported by Mospi).

So the point is this – We have to assume the data in row 21 and 22 is correct, the finance minister declared it. So the rows 25 and 26 have to be correct (even though they are derived numbers – data in shaded rows is derived data). So nominal GDP did grow only 10.7% in FY13. The issue is – what rate did real GDP grow? (to the best of my knowledge, real GDP is derived from nominal by this magic figure – deflator, so it is a very important number). What if the deflator was more than 5%, which it should be. So maybe real GDP grew just 2-3% in FY13.

Derived nominal GDP, and GDP deflator, from Budget data

Derived nominal GDP, and GDP deflator, from Budget data

Such a low GDP growth rate is not outside the realms of possibility. See data for FY14. The government has projected nominal GDP growth of 12.8%, and if we take expected real GDP growth of 6.5% for FY14, then we get a deflator of around 6% as well. Given that inflation is expected to moderate in FY14, shouldn’t the deflator for FY14 be less than the deflator for FY13? This means FY13 deflator has been understated.

In other words, the real GDP growth in FY13 of 5.4% seems overstated


2 Responses to “Did real GDP grow only 2-3% in FY13?”

  1. Shiva R said

    As per the new budget “Fiscal deficit seen at 4.8 pct of GDP in 2013/14” Following page http://in.reuters.com/subjects/india-budget-2013 for more details

  2. […] blog has written earlier how FY13 GDP growth was most likely overstated. In the post ‘Did real GDP grow only 2-3% in FY13?‘ we pointed out that the data in government budget was self contradictory, unless the GDP […]

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